Second Appellate Case on Whether IRC 6213(a)’s Deadline is Still Jurisdictional and First Tax Court Case Involving IRC 6015(e)(1)(A)

October 26, 2022 by Leave a Comment

It has been six months since Boechler was decided.  Where are we?

In my last post of August 1, 2022, giving an update onlitigation over whether the 90-day deadline in IRC 6213(a) in which to file a Tax Court deficiency petition is, after Boechler, still jurisdictional or is subject to equitable tolling, I noted two principal test cases:  First, the Tax Court is considering the issue in Hallmark Research Collective v. Commissioner, Tax Ct. Docket No. 21284-21, and I expect a ruling from the Tax Court therein probably around Christmas.  Second, the Third Circuit is considering the issue in Culp v. Commissioner, 3d Cir. Docket No. 22-1789, where I expect a ruling next spring.

Since my last post, another appellate case under IRC 6213(a) has surfaced, Allen v. Commissioner, 11th Cir. Docket No. 22-12537. 

And in Frutiger v. Commissioner, Tax Court Docket No. 31153-21 – a case mentioned by Chief Special Trial Judge Carluzzo at the recent ABA Tax Section meeting – the Tax Court will likely decide whether, after Boechler, the 90-day deadline in IRC 6015(e)(1)(A) to file a stand-alone innocent spouse petition is still jurisdictional and not subject to equitable tolling.

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Allen, like the Culps, is a semi-retired non-tax attorney.  Under the IRC 7508A(a) COVID extension set out in Notice 2020-23, the due date for Allen to file his Tax Court deficiency petition was July 15, 2020.  On the due date, he went late in the day to the post office, but the line was unusually long (including 6-foot spacing) and stretched outside the building.  As he waited in line, a post office employee walked up and down it trying to triage the most important filings.  The employee spoke to Allen, who explained that he needed to send the envelope containing the notice certified mail so that it would be postmarked July 15, 2020. The employee thought the post office might close before Allen got up to the window, and the employee persuaded Allen to simply drop the envelope into a slot for regular mail, assuring Allen that the envelope would be postmarked July 15, 2020.  Naturally, the envelope arrived at the Tax Court postmarked July 16, 2020.

The IRS moved to dismiss Allen’s petition for lack of jurisdiction.  In an order dated April 29, 2022, the Tax Court granted the motion.  The dismissal for lack of jurisdiction occurred eight days after the Supreme Court decided Boechler and seven days before the Tax Court suspended ruling on these kinds of motions in deficiency cases, pending the Hallmark ruling.  Allen appealed pro se to the Eleventh Circuit, arguing that, after Boechler, the deficiency petition filing deadline is no longer jurisdictional and is subject to equitable tolling.  Allen argues that both the unusual COVID situation and the actions of the USPS employee caused the late filing.

In the Culp case, the DOJ moved for summary affirmance, but the Third Circuit denied that motion.  In my August 1, 2022 post, I linked to the taxpayers’ subsequent opening brief in Culp.  Since then, the DOJ has filed its Culp opening brief, which you can find here.

In Allen, the DOJ also moved for summary affirmance.  All of the filings are in on that motion since October 6, 2022, and we are awaiting the Eleventh Circuit’s ruling on that motion.

Just as it had done in Culp, the Center for Taxpayer Rights, represented by the Tax Clinic at the Legal Services of Harvard Law School, hopes to file an amicus brief in Allen if the case survives the motion for summary affirmance.

The third biggest jurisdiction of the Tax Court by volume is stand-alone innocent spouse cases.  That jurisdiction now has its own test case pending on whether the IRC 6015(e)(1)(A) 90-day filing deadline is still jurisdictional after Boechler.  The case is Frutiger v. Commissioner, Tax Court Docket No. 31153-21, involving relief for only about $4,000 of liability under subsection (f).  The case was on the eve of trial – indeed, the IRS had already filed its pretrial memo – when Judge Buch noticed that the pro se taxpayer’s petition appeared to be mailed to the Tax Court two days late.  In an order dated September 7, 2022, Judge Buch continued the trial and asked the IRS to submit proof of mailing and explain (1) whether the Tax Court’s precedent at Pollock v. Commissioner, 132 T.C 21 (2009) (holding that the filing deadline is jurisdictional and not subject to equitable tolling) is still good law after Boechler and (2) “what would be the consequence of filing an untimely petition” if the deadline is jurisdictional or not.  The IRS response was filed on October 4, 2022. That response provided proof of mailing showing that the taxpayer filed late and argued that Pollock is still good law after Boechler because the Collection Due Process and innocent spouse statutes are not identically phrased.  On October 21, 2022, the IRS moved to allow the filing of a first supplement to its response that more fully attempted to distinguish Boechler, stating, “Respondent recognizes his original response lacked information warranted for consideration regarding the issues raised in the Court’s Order.”  I expect the motion to be granted.  You can find the first supplemental response here.

After Pollock was issued, three Circuit courts had ruled that the IRC 6015(e)(1)(A) filing deadline is jurisdictional and is not subject to equitable tolling.  Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017); Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2017).  No other Circuit has any precedent on whether this filing deadline is jurisdictional or subject to equitable tolling.  Frutiger lives in the Ninth Circuit. 

Under IRC 7459(d), a dismissal that is not jurisdictional upholds the deficiency set out in the notice, which would possibly preclude the taxpayer by res judicata from later paying and suing for a refund.  While there is no similar provision to IRC 7459(d) in IRC 6015, there is a special res judicata provisions for innocent spouse cases at IRC 6015(g)(2) that may prove problematic.  There is also conflicting case law over whether district courts (except in one rare situation described in IRC 6015(e)(3)) ever have jurisdiction to consider refund suits seeking IRC 6015 relief.  See the post on the Hockin opinion here.

Judge Buch instructed Frutiger to file a response to the IRS filing by November 18, 2022. 

Recognizing that a pro se taxpayer was probably not likely to be able to present adequate arguments on the legal issues, in his order, the judge invited the submission of motions for leave to file amicus briefs in the case (accompanied by the proposed amicus brief), also by November 18, 2022.  Judge Buch’s action inviting a brief is laudable and consistent with the Tax Court’s March 23, 2022, proposed new Rule 152 on amicus briefs.  You can find a link to an article calling for amicus briefs in certain pro se Tax Court cases within a post of Keith’s on pro se petitions in the Tax Court.  The Tax Court’s proposed new Rule 152 on amicus briefs is linked within another of Keith’s posts.

The Center for Taxpayer Rights, represented by the Tax Clinic at the Legal Services of Harvard Law School, hopes to file an amicus brief in Fruitger.  The parties have told the Center that they would not object to a motion by the Center for leave to file such an amicus brief.  Perhaps Keith’s request to the IRS attorney in the case for the IRS position on a motion for leave to file an amicus brief triggered the IRS to file its fuller, supplemental response?

I would not call it a test case, but Judge Choi may not be aware that in a case before her, Cabral v. Commissioner, Tax Ct. Docket No. 12078-20S, she is facing the same issue as in Frutiger.  Cabral concerns an IRC 6015(e) notice of determination and a petition that was filed about three weeks beyond the 90-day deadline.  On October 13,2022, Judge Choi issued an order to show cause why the court should not dismiss the petition for lack of jurisdiction for late filing.  Judge Choi may want to hold off ruling on her order until after Judge Buch issues his opinion in Frutiger.  The taxpayer in Cabral lives in the Third Circuit, which, of course, has the above-cited Rubel opinion as current precedent.

On a related topic, it appears that, as I expected, the IRS will now try to dispose of at least some late-filed CDP cases by summary judgment motion (see Sherman v. Commissioner, Tax Ct. Docket No. 11951-20L (order dated Oct. 6, 2022), directing the IRS to file the summary judgment motion that it said in a status report that it intended to file).  However, there is, as yet, no ruling on such a motion that I could find – whether or not the taxpayer has also sought equitable tolling.  It may be too early to see orders on such summary judgment motions, but, so far, the IRS-predicted flood of late-filed CDP petitions seeking equitable tolling seems not to have materialized.

At the most recent ABA Tax Section meeting, Judge Carluzzo said that the court would not likely have to rule on equitable tolling in very many cases.  In Christine’s post of October 21, 2022, on that meeting, she reports that he also told the audience what PT has been saying – that in CDP cases, the IRS should now assert late petition filing as a statute of limitations defense in answers, and that taxpayers should assert equitable tolling defenses in replies in such case.  That appears to be what Rule 39 requires for pleading special matter.

Filed Under: Federal Courts - Jurisdiction, Tax Court Tagged With:

Winning Boechler Took a Village

April 21, 2022 by 5 Comments

Today we welcome back retired blogger, Carl Smith.  Carl was the architect of the argument that time periods for filing a petition in Tax Court are not jurisdictional based on his reading of Supreme Court cases coming out in other areas of the law.  He worked with the Tax Clinic at the Legal Services Center of Harvard Law School to assist in writing briefs and preparing the students to make oral arguments to Circuit courts.  He worked to identify cases in which we should make the arguments, including the first case it entered (as an amicus), Guralnik v. Commissioner, in which the Tax Clinic made the argument in a case involving a snow day and the Tax Court rejected our argument 17-0.  He also worked with attorneys around the country who had these cases helping them craft their arguments and helping the Harvard students write amicus briefs.  Today’s post is Carl recognizing the village, but I want to recognize him for creating the legal designs that ultimately led to the Supreme Court’s decision.  Keith

In Boechler v. Commissioner, the Supreme Court held that the filing deadline for a Tax Court Collection Due Process petition is not jurisdictional and is subject to equitable tolling.  This victory was about 15 years in the making, and it took a village of almost all pro bono attorneys and clinicians to make it happen.  I wanted to send out thanks to those who helped along the way:

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Jason Grimes – the young pro bono Florida attorney who first made the argument, in a district court suit brought by the IRS to collect taxes, that one of the taxpayers should be entitled to raise section 6015 innocent spouse relief as a defense.  The district court (I think, erroneously) concluded that it lacked jurisdiction to consider relief under section 6015.  Jason persuaded the district court to equitably toll the section 6015(e) filing deadline so that the taxpayer could belatedly file a Tax Court petition.  United States v. Pollock, 2007 U.S. Dist. LEXIS 98153 (S.D. Fla. 2007).  When Jason filed the Tax Court petition on behalf of Mrs. Pollock, he argued that the recent Supreme Court non-tax case law making filing deadlines usually not jurisdictional required the Tax Court to accept the case.  The Tax Court rejected accepting the case, holding the deadline jurisdictional and not subject to equitable tolling.  Pollock v. Commissioner, 132 T.C. 21 (2009).  I became aware of the argument that Tax Court filing deadlines might no longer be jurisdictional when I read the Pollock opinion and the recent Supreme Court non-tax opinions concerning jurisdiction, and I made the same argument Jason did (also unsuccessfully) for a client of the Cardozo Tax Clinic in Gormeley v. Commissioner, T.C. Memo. 2009-252.  (By the way, appeals were docketed from both the Pollock and Gormeley opinions, but the taxpayer appeals were dropped before opinion after the IRS stopped pursuing Mrs. Pollock for collection and the IRS belatedly discovered (at my insistence that they look) that they had never sent Ms. Gormeley the notice of deficiency that underlay her section 6015 relief request.)

Keith Fogg – who, as the Director of the Tax Clinic at the Legal Services Center of Harvard Law School, agreed to lend his clinic’s name and assistance to an amicus brief that he and I filed in the Tax Court case of Guralnik v. Commissioner, 146 T.C. 230 (2016), arguing that the section 6330(d)(1) deadline to file a Tax Court Collection Due Process (CDP) petition is not jurisdictional and is subject to equitable tolling under the recent Supreme Court non-tax case law on jurisdiction and equitable tolling.  We lost that argument in the case by a vote of 17 judges to zero, which might have deterred Keith from ever making the argument again, but he persisted in lending the clinic’s name and students to many later cases in which the clinic  argued (either as counsel for taxpayers or as amicus) that the Tax Court filing deadlines for innocent spouse, CDP, deficiency, and whistleblower awards petitions are not jurisdictional and are subject to equitable tolling.  In addition to Boechler v. Commissioner, 967 F.3d 760 (8th Cir. 2020) (CDP), the Harvard clinic was involved in Organic Cannabis Foundation LLC v. Commissioner, 962 F.3d 1082 (9th Cir. 2020) (deficiency); Myers v. Commissioner, 928 F.3d 1025 (9th Cir. 2019) (whistleblower award); Nauflett v. Commissioner, 892 F.3d 649 (4th Cir. 2018) (innocent spouse); Cunningham v. Commissioner, 716 Fed. Appx. 182 (4th Cir. 2018) (CDP); Duggan v. Commissioner, 879 F.3d 1029 (9th Cir. 2018) (CDP); Matuszak v. Commissioner, 862 F.3d 192 (2d Cir. 2017) (innocent spouse); and Rubel v. Commissioner, 856 F.3d 301 (3d Cir. 2017) (innocent spouse).

Amy Feinberg – a student of Keith’s in the Tax Clinic who did oral argument to the 4th Cir. in Cunningham while a Harvard Law student, and then, while at Latham & Watkins, persuaded her firm to allow her to do the oral argument in the 8th Cir. in Boechler pro bono.  Amy also persuaded her firm to do the Supreme Court Boechler case pro bono.  Amy also helped draft the taxpayer’s Supreme Court filings.  In addition to Amy, Harvard Law Students Jeff Zink, now an associate with Covington and Burling in D.C., argued the Matuszak case before the Second Circuit and Allison Bray, now an associate with Kirkland and Ellis in San Francisco, argued the Nauflett case before the Fourth Circuit.  Numerous students at the Tax Clinic assisted in writing amicus briefs over the six years since the Tax Clinic began pursuing this issue.  Jonathan Blake and Nathan Raab worked on the amicus brief in Boechler following a long line of prior clinic students. 

Melissa Sherry – the Latham attorney who took on the Supreme Court Boechler case pro bono and did one of the most outstanding oral arguments I have ever heard and who did briefing in the Supreme Court case that improved on several of the arguments that Keith and I had first made in Guralnik.

Carolyn Flynn – a Latham attorney who helped write the Supreme Court briefs in Boechler.

Joseph DiRuzzo – who, at my suggestion, entered a pro bono appearance for the petitioner in Myers v. Commissioner, where Joe successfully argued that the whistleblower award filing deadline at section 7623(b)(4) is not jurisdictional and is subject to equitable tolling.  Myers created the Circuit split that caused the Supreme Court to grant review in Boechler, since there is no practical difference between the language of sections 6330(d)(1) and 7623(b)(4).

David Clark Thompson – who represented the taxpayer in Boechler in the Tax Court and 8th Cir. and had the wisdom to make the argument that the Harvard clinic had made in Duggan to the 9th Cir.

Elizabeth Maresca – Director of the tax clinic at Fordham, who decided to pursue the argument that the CDP petition filing deadline is not jurisdictional and is subject to equitable tolling in the factually-appealing case of Castillo v. Commissioner (currently pending in the 2d Cir., waiting the Boechler ruling) – a case much cited in the briefs in the Supreme Court in Boechler.

Nina Olson – who, as IRS National Taxpayer Advocate, argued that Congress should clarify that all Tax Court petition filing deadlines are not jurisdictional and are subject to equitable tolling.  Later, as the Director of the Center for Taxpayer Rights, Nina also lent her organization’s name to briefs drafted by Keith, me, and students in the Harvard clinic in Boechler.

Frank Agostino – who, acting pro bono, raised the Boechler argument in a late-filed CDP case apparently appealable to the D.C. Circuit, Amanasu Environment Crop. v. Commissioner, T.C. Docket No. 5192-20L, even before the Supreme Court granted cert. in Boechler.  Frank was hoping not only to benefit the taxpayer, but create a direct Circuit split with the 8th Cir. Opinion in Boechler over the section 6330(d)(1) filing deadline – on the assumption that the D.C. Circuit panel would feel compelled to follow a prior panel’s Myers opinion involving the whistleblower award filing deadline.  To this end, in April 2021, Frank also successfully made a motion to remove the case’s original small tax case designation.  However, the Tax Court deferred deciding the pending motion to dismiss in the case until after the Boechler opinion was issued.

Lavar Taylor and team at Skadden, Arps, Slate, Meagher & Flom LLP (Sam Auld, Peter Bruland, Shay Dvoretzky and Emily Kennedy) – who wrote excellent amicus briefs in support of Boechler.

Filed Under: Collection Due Process, Equitable tolling, SCOTUS Tagged With:

Things That Make You Say Hmmm

May 27, 2021 by 3 Comments

We welcome back guest blogger and commenter in chief, Bob Kamman.  As usual, Bob has found things that the rest of us overlook. 

In addition to the interesting twists on the way things work that Bob discusses below, I received a message from Carl Smith who, though retired, still takes some interest in what is happening in the world of tax procedure.  Carl provides some data on the Tax Court that might be of interest to court watchers.  After checking DAWSON, Carl sent the following message:

The last docket number for 2020 was 15,351.  Since the court doesn’t give out the first 100 docket numbers (i.e., the court starts at docket no. 101), that means filings in 2020 totaled 15,251, which is the lowest in two decades.  (The 1998 Act so froze the IRS that, according to Dubroff and Hellwig (Appendix B), only roughly 14,000 petitions were filed in 1999 and 15,000 petitions were filed in 2000.)  The last docket number in 2019 was 23,105, so filings in 2020 fell off about a third from 2019 to 2020.

As of right now, May 27, before the court’s Clerk’s Office opens, the last docket number is 8856-21 — only slightly ahead of the pace for 2020, though I would note that the first 10 weeks of 2020 were not impacted by the virus at all.

Oddly, the Tax Court is still very backlogged in serving petitions on the IRS.  Docket 8856-21 was filed on 3/15, but says it was served 5/27 — i.e., it will be later today.  That time gap of two and a half months to serve the petition is typical right now. Looking to the last few dockets of 2019, it typically took only 14 days to serve a petition filed on Dec. 31, 2019.

Keith

I thought I knew at least the basics of tax procedure, but lately I am starting to wonder if they changed the rules while I was slipping into old age.

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For example, there is the statute of limitations for refunds of individual income tax.  From a Notice CP81 mailed from IRS in Austin and dated May 24, 2021: “We haven’t received your tax return for the year shown above.  The statue [yes, that’s what it says, not statute] of limitations for claiming a refund for the tax year shown above is set to expire.  As a result, you are at risk of losing the right to a potential refund of your credits and/or payments shown above.”

The credit on the account is $145. The tax year is 2017.

No, the taxpayer does not live in Texas or other disaster area.  I should say, did not live there.  He died in July 2020. 

Of course it’s possible that the credit came from a timely-filed extension request in April 2018.  No one alive now, has any records of what he did back then.  We do know that IRS paid him refunds on 2018 and 2019 returns, without any reminders or requests about 2017.  Requesting an account transcript for a decedent would take some time, to find out. 

And another thing.  I thought I knew the rules about when IRS would pay interest on refunds, and when it would not.

Then another tax practitioner reported that a Form 1040 that was e-filed on April 15 resulted in a refund deposited on April 23, with several dollars of interest added.  The refund was in the $10,000 range.  I had my doubts about this, until something similar happened with one of my clients.

They had filed their return in March, but claimed a “Recovery Rebate Credit” for a payment they had not received.  IRS is verifying all of these, so the refund was not approved and deposited to their bank account until April 28.  It included $1.31 in interest. 

I had always thought that IRS has 45 days from the date the return is due, or when received if later, to pay the refund without interest.  The IRS website states, “We have administrative time (typically 45 days) to issue your refund without paying interest on it.”

So I did some research, and this is what I found.  But I may not have gone far enough.

Code Section 7508A deals with disaster areas and allowed IRS to permit last year’s 3-month extension and this year’s 1-month extension.  It provides:

( c)        Special rules for overpayments
The rules of section 7508(b) shall apply for purposes of this section.

And Section 7508(b) says

(b)         Special rule for overpayments
(1)         In general
Subsection (a) shall not apply for purposes of determining the amount of interest on any overpayment of tax.
(2)         Special rules
If an individual is entitled to the benefits of subsection (a) with respect to any return and such return is timely filed (determined after the application of such subsection), subsections (b)(3) and (e) of section 6611 shall not apply.

So what are these two parts of Section 6611 that should be disregarded?

The second one mentioned, 6611(e) has the 45-day rule. So IRS can’t rely on that.

But the first one, 6611(b)(3), deals only with “late returns”. That still leaves Section 6611(b)(2), which gives IRS 30 days to issue a refund with no interest:

(b)         Period
Such interest shall be allowed and paid as follows: . . .
(2)         Refunds
In the case of a refund, from the date of the overpayment to a date (to be determined by the Secretary) preceding the date of the refund check by not more than 30 days, whether or not such refund check is accepted by the taxpayer after tender of such check to the taxpayer. 

So the 45-day rule is out, but shouldn’t the 30-day rule still be followed? At least, that’s the way I followed the trail.  But I could be wrong. I’m expecting a TIGTA or GAO report later this year, telling me why IRS did it right.  But I also expect some members of Congress to lament the interest expenditures.

Then there came along the repeal of the tax on ACA premium underpayments in 2020.  If taxpayers paid less for health insurance last year because they underestimated their income and received too much premium tax credit, they would have to make up the difference – until that requirement was repealed by the American Rescue Plan (ARP) in mid-March.  So now IRS has started issuing refunds to those who had already paid this tax. 

According to other practitioners, these refunds have included interest, even when paid before May 15.

IRS is about to start paying refunds to taxpayers who included unemployment compensation in income, before it was excluded for most returns by ARP.  Should these refunds include interest, even if paid within 45 days of April 15?  I suppose so.  These are, after all, not normal times.

Filed Under: Overpayment Interest, Tax Court Tagged With: ,

Is the Requirement to File a Refund Claim Before Bringing Suit Waivable?

January 18, 2019 by 1 Comment

Contributor Carl Smith who is filling in for me at the tax clinic at Harvard while I am on sabbatical found time to write about a case headed for a decision in the Supreme Court that might have tax implications. The tax implications are complicated by prior Supreme Court case law in the tax area regarding the requirement for a refund claim. This is something to watch if you are interested in jurisdictional issues or if you have a case in which the client has failed to file a claim (or maybe faces a variance argument.) Keith

On January 11, 2019, the Supreme Court granted certiorari in a case that may indirectly impact whether the requirement to file with the IRS an administrative refund claim before bringing a tax refund suit is jurisdictional, Davis v. Fort Bend County, Texas, 893 F.3d 300 (5th Cir. 2018).

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Section 7422(a) requires that a taxpayer bringing a suit for refund first file with the IRS an administrative claim for refund. In United States v. Dalm, 494 U.S. 596, 601-602, 608 (1990), the Supreme Court stated that both the filing of an administrative claim and the timely filing of such claim were jurisdictional requirements of a refund suit. Jurisdictional requirements cannot be waived by the parties or forfeited if a party fails to timely object.

Dalm was decided before the Supreme Court changed its thinking on what conditions of suits are jurisdictional. Since 2004, the case law (which we have discussed in many previous posts) is that “claims processing rules” are generally no longer jurisdictional. There are only two exceptions to this rule. First, Congress can make a claims processing rule jurisdictional by making a clear statement in the statute to that effect. Second, if there is a long line of Supreme Court cases holding the claims processing rule jurisdictional, then the Court will stick to that interpretation under stare decisis.

Dalm was the first and only Supreme Court opinion calling the requirement to file a predicate administrative refund claim jurisdictional, so it seems unlikely that the stare decisis exception would apply. And, section 7422(a) does not contain the word “jurisdiction” or appear to speak in jurisdictional terms. Rather, the jurisdictional grant for refund suits is located elsewhere – at 28 U.S.C. sec. 1346(a)(1). The Supreme Court has held that the separation of a claims processing rule from a jurisdictional grant is evidence that Congress did not intend a claims processing rule to be jurisdictional.

In dicta a few years ago, the Seventh Circuit speculated that the requirement to file an administrative tax refund claim before bringing a tax refund suit might no longer be jurisdictional. It wrote:

The Gillespies do not respond to the government’s renewed argument that § 7422(a) is jurisdictional, though we note that the Supreme Court’s most recent discussion of § 7422(a) does not describe it in this manner, see United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4-5, 11-12 (2008). And other recent decisions by the Court construe similar prerequisites as claims-processing rules rather than jurisdictional requirements, see, e.g., United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1632-33 (2015) (concluding that administrative exhaustion requirement of Federal Tort Claims Act is not jurisdictional); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010) (concluding that Copyright Act’s registration requirement is not jurisdictional); Arbaugh v. Y & H Corp., 546 U.S. 500, 504 (2006) (concluding that statutory minimum of 50 workers for employer to be subject to Title VII of Civil Rights Act of 1964 is not jurisdictional). These developments may cast doubt on the line of cases suggesting that § 7422(a) is jurisdictional. See, e.g., United States v. Dalm, 494 U.S. 596, 601-02 (1990); Greene-Thapedi v. United States, 549 F.3d 530, 532-33 (7th Cir. 2008); Nick’s Cigarette City, Inc. v. United States, 531 F.3d 516, 520-21 (7th Cir. 2008).

Gillespie v. United States, 670 Fed. Appx. 393, 394-395 (7th Cir. 2016).

Title VII of the Civil Rights Act provides for private causes of action arising out of employment discrimination and gives federal courts subject matter jurisdiction to resolve such disputes. See 42 U.S.C. § 2000e-5(f). Before seeking judicial relief, however, Title VII plaintiffs are required to exhaust their administrative remedies by filing a charge of discrimination with the Equal Employment Opportunity Commission within 180 days of the alleged discrimination. 42 U.S.C. § 2000e-5(e)(1).

The Circuit courts are badly split over whether the exhaustion of administrative remedies requirement in Title VII is jurisdictional or merely a nonjurisdictional claim processing rule subject to waiver, forfeiture, estoppel, and equitable tolling. By the count of the Fifth Circuit in Davis, three Circuits take the position that the administrative filing requirement is jurisdictional, while eight (including the Fifth Circuit in Davis) find it a waivable nonjurisdictional claims processing rule.

In holding that the exhaustion requirement was not jurisdictional, the Fifth Circuit in Davis relied heavily on the Arbaugh case (cited in the above quote from Gillespie). It wrote: “Title VII’s administrative exhaustion requirement is not expressed in jurisdictional terms in the statute, see 42 U.S.C. § 2000e-5, and just as in Arbaugh, there is nothing in the statute to suggest that Congress intended for this requirement to be jurisdictional.” Davis, 893 F.3d at 306.

But for the complicating existence of the Dalm opinion, it is hard to imagine that if the Supreme Court holds the Title VII administrative exhaustion requirement nonjurisdictional (as most Circuits have), that § 7422(a)’s tax refund claim filing requirement could still be held jurisdictional.

 

Filed Under: refund claim Tagged With:

Update: Can District Courts Hear Innocent Spouse Refund Suits?

December 24, 2018 by 1 Comment

We welcome back frequent guest blogger Carl Smith. Carl discusses a case, Hockin, in which the Tax Clinic at the Legal Services Center of Harvard Law School has filed an amicus brief. If you read the brief filed by Ms. Hockin, to which we link below, you will learn the underlying facts of the case. Like the vast majority of innocent spouse cases these facts describe the sad circumstances that led her to request relief. Relief here for her, if she obtains it, will not make her whole monetarily because of the Flora rule. (Of course, relief would never make her whole in the true sense because the tax system can only assist her with the tax component of the difficult situation caused by the actions of her former husband.) 

This case should not only make us think about the jurisdictional issues raised by the innocent spouse provisions but also about how the application of the Flora rule prevents taxpayers without the wherewithal to fully pay in a short span of time to obtain the return of all of the money paid to the IRS for taxes that they do not owe. This situation describes most low income taxpayers. Keith

This is an update on two cases discussed by Keith in a recent post. The post primarily discussed the case of Chandler v. United States, 2018 U.S. Dist. LEXIS 174482 (N.D. Tex. Sept. 17, 2018) (magistrate opinion), adopted by judge at 2018 U.S. Dist. LEXIS 173880 (N.D. Tex. Oct. 9, 2018). Chandler was a district court suit in which an individual sought a refund for overpaying her equitable share of taxes on a joint return, taking into account innocent spouse relief under section 6015(f). In Chandler, the district court granted a DOJ motion to dismiss for lack of jurisdiction, holding that only the Tax Court could hear suits involving innocent spouse relief. Keith wondered whether there would be an appeal of this ruling of first impression with respect to innocent spouse refund suit jurisdiction.

In his post, Keith also mentioned the existence of a similar innocent spouse refund suit under section 6015(f) pending in the district court for the District of Oregon, Hockin v. United States, Docket No. 3:17-CV-1926. In that case, a similar DOJ motion to dismiss for lack of jurisdiction was pending, arguing that district courts cannot hear refund suits involving innocent spouse relief.

The update, in a nutshell, is that Chandler was not appealed, but Hockin has been set up as a test case, where nearly all the filings are in and linked to below.

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Both under the original innocent spouse provision (section 6013(e), which existed from 1971 to 1998) and the current innocent spouse provision (section 6015, enacted in 1998), the district courts and the Court of Federal Claims had occasionally, and without objection from the DOJ, entertained suits for refund filed solely on the grounds that a taxpayer paid more than was required after the application of the innocent provisions.

Although the DOJ had apparently never done so before in any innocent spouse refund suit going back all the way to the 1970s and 1980s, in the summer of 2018, DOJ trial division lawyers in both Chandler and Hockin submitted motions to dismiss for lack of jurisdiction, arguing that, because Congress in 1998 enacted a stand-alone innocent spouse Tax Court action at section 6015(e) in which the Tax Court can find an overpayment under section 6015(b) or (f), the Tax Court is the sole court in which innocent spouse refund suits can now be filed (i.e., via section 6015(e)), and so neither the district courts nor the Court of Federal Claims has jurisdiction to entertain innocent spouse refund suits. The DOJ motions acknowledged only one rare exception to this position: Where there was a pending refund suit in a district court or the Court of Federal Claims (presumably on other issues) at a time when a taxpayer also filed a suit in the Tax Court under section 6015(e), the statute provides that the Tax Court innocent spouse suit should be transferred over to the court hearing the refund suit. Section 6015(e)(3).

In July, Keith and I were alerted to the existence of the motion in Hockin – but not the one in Chandler – by pro bono counsel for Ms. Hockin, J. Scott Moede, the Chief Deputy City Attorney of the Portland, Oregon Office of the City Attorney. Mr. Moede had taken on the Hockin case in his role as a regular voluteer with the Lewis & Clark Low-Income Taxpayer Clinic in Portland. That clinic suggested that Mr. Moede contact the Harvard Federal Tax Clinic because of the Harvard clinic’s interest in innocent spouse cases.

Working with summer students, in August, Keith and I put together a draft of a proposed amicus memorandum for Hockin arguing that the DOJ position was both ahistorical and contrary to the 1998 and 2000 legislative history of section 6015(e) that seemed to make clear that Congress enacted section 6015(e) to be added on top of all existing avenues for judicial review of innocent spouse issues, not to repeal or replace any prior avenues for judicial review.

Further, in the draft memorandum, we pointed out that the Trial Section’s motion in Hockin took a position directly contrary to the position that the DOJ Appellate Section had taken in three cases that the Harvard clinic had recently litigated. In those three cases, the DOJ Appellate Section urged the appellate courts not to worry about holding that a person who filed a late Tax Court suit under section 6015(e) must have her suit dismissed for lack of jurisdiction. The DOJ Appellate Section said that such a taxpayer could always still get judicial review of the IRS’ decision to deny innocent spouse relief by paying the tax in full, filing a refund claim, and suing for a refund in the district court or the Court of Federal Claims.

In both Hockin and Chandler, the taxpayers received a notice of determination denying innocent spouse relief, but did not try to petition the Tax Court within the 90 days provided under section 6015(e). Rather, after later making either partial (Chandler) or full (Hockin) payment, the taxpayers filed refund claims and brought refund suits in district court that were timely under the rules of sections 6511(a) and 6532(a) (though, for Hockin, the lookback rules of section 6511(b) limit the amount of the refund to only a portion of what Ms. Hockin paid). Thus, except for the full payment (Flora) rule problem in Chandler, the taxpayers had done exactly what the Appellate Section said they should do to get judicial review of innocent spouse relief rulings other than through section 6015(e).

In August, we sent a draft copy of the memorandum to the DOJ attorney in Hockin and asked whether the DOJ would object to a motion by the Harvard clinic to file it. This draft memorandum apparently triggered the DOJ’s desire to explore mediation in the case. So, the case was assigned to a magistrate for mediation, and further filings on the motion (including the amicus motion) were postponed.

Then, in September and October, the magistrate and district court judge, respectively, issued rulings in Chandler granting the DOJ’s motion to dismiss for lack of jurisdiction. That is how Keith, Mr. Moede, and I learned of the existence of the Chandler case presenting the identical jurisdictional issue. Although Ms. Chandler was represented by counsel, that counsel had filed no papers in response to the DOJ motion to dismiss in her case. Naturally, this led to the magistrate and judge in Chandler relying entirely on the DOJ’s arguments and citations in ruling for the DOJ.

In his recent post on Chandler, Keith raised the question whether the Chandler district judge ruling would be appealed to the Fifth Circuit. The first piece of news in this update is that Ms. Chandler decided not to appeal. Frankly, give the Flora full payment problem in the case, I think an appeal on the issue of whether the district court otherwise would have had jurisdiction would have been pointless.

But, the second piece of news is that, in November, mediation failed in the Hockin case. So, Hockin is now set up as a possible appellate test case, depending on the district court’s ruling.

The DOJ has now not objected to the Harvard clinic’s filing of an amicus memorandum in Hockin. That memorandum was filed on November 26.

On December, 21, Ms. Hockin (through Mr. Moede) filed her response to the DOJ motion. In her response, Ms. Hockin argued not only that the district court had jurisdiction over section 6015 innocent spouse relief refund suits, but also that she had raised in her refund claim two additional arguments: that she had never filed a joint return for the year and that the IRS should be bound to give her innocent spouse relief for the year because it had given her such relief for the immediately-following taxable year. As noted in the Harvard memorandum, the “no joint return” argument has been considered in district court refund lawsuits even predating the enactment of the first innocent spouse provision in 1971.

The DOJ will be allowed to file a reply by January 11.

On February 5, oral argument on the motion will be heard before a magistrate who was not involved in the mediation. Ms. Hockin has agreed to have this magistrate decide the jurisdictional motion without the involvement of a district court judge, but the DOJ has not yet similarly consented. If the DOJ does the same, and the magistrate dismisses the case, this would allow a direct appeal from the magistrate to the Ninth Circuit. If the DOJ does not consent, the magistrate’s ruling will have to be reviewed by a district court judge before a party could appeal any adverse ruling to the Ninth Circuit.

You can find here for Hockin, the DOJ’s motion, the Harvard clinic’s amicus memorandum, and Ms. Hockin’s response.

Finally, you may be aware of the recent amendment of 28 U.S.C. section 1631 that allows district courts and the Court of Federal Claims to transfer to the Tax Court suits improperly filed in the former courts. That amendment would not help Ms. Hockin, since her district courts suit was filed long after the 90-day period to file a Tax Court suit under section 6015(e) expired. So, her case, if transferred, would have to be dismissed by the Tax Court for lack of jurisdiction because the suit was untimely filed in the district court for purposes of the Tax Court’s stand-alone innocent spouse case jurisdictional grant. For Ms. Hockin, her only chance now for getting a refund attributable to the innocent spouse provisions is for the courts to agree that district courts have jurisdiction to consider innocent spouse refund suits.

 

Filed Under: Flora, Innocent Spouse Tagged With:

District Court Equitably Tolls 2-Year Deadline to File Refund Suit

November 26, 2018 by 1 Comment

Frequent guest blogger Carl Smith discusses an important recent decision holding that the time to file a refund suit is not a jurisdictional time frame. In the case discussed by Carl, the facts allowed the taxpayer to successfully argue for an extended time period within which to file based on equitable tolling. Keith

PT readers know that Keith and I – through the Harvard clinic – have been arguing in a lot of cases that judicial filing deadlines in the tax area are no longer jurisdictional and are subject to equitable tolling under recent non-tax Supreme Court case law limiting the use of the term “jurisdictional” and expanding the use of equitable tolling. So far, we have lost on Tax Court innocent spouse and Collection Due Process filing deadlines; appellate cases on Tax Court deficiency and whistleblower awards jurisdiction deadlines are pending.

But, while I was still running a tax clinic at Cardozo School of Law, as an amicus, I helped persuade the Ninth Circuit to hold that the then-9-month filing deadline at section 6532(c) to bring a district court wrongful levy suit is not jurisdictional and is subject to equitable tolling. Volpicelli v. United States, 777 F.3d 1042 (9th Cir. 2015). Relying both on the recent Supreme Court non-tax case law and Volpicelli, a district court has just held that the 2-year deadline at section 6532(a) to bring a district court or Court of Federal Claims tax refund suit is not jurisdictional and is subject to equitable tolling. Wagner v. United States, E.D. Wash. Docket No. 2:18-CV-76 (Nov. 16, 2018).

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In Wagner, a couple filed a 2012 joint income tax return showing an overpayment of $1,364,363 and asked that $500,000 of the overpayment be refunded and the rest be applied as a credit to 2013 estimated taxes. I quote the remainder of the brief facts from the opinion:

In November, 2014, the IRS sent a letter disallowing some of the refund. . . .

Specifically, the IRS indicated it was allowing only $839,999 of the claim, and disallowing the remainder because “we are unable able to verify the total amount of your withholding based on information provided by the Social Security Administration.” Id. The amount of the disallowed claim was $524,364.

Plaintiffs replied by letter on December 5, 2014, indicating they were requesting a formal Appeal to the findings and also requesting an oral hearing. . . . They also provided additional information regarding the requested refund.

Nothing happened until May, 2016 when the IRS sent another letter, this time stating it was disallowing the entire $1,364,363 refund claim. . . .Specifically, the letter stated:

This letter is your notice that we’ve partially disallowed your claim for credit for the period shown above. We allowed only $.00 of the claim.  Id. 

The letter also indicated that Plaintiffs were now going to owe interest and penalties. Although it did not explicitly say so in the letter, the determination of the $.00 allowance of the claim meant the IRS was also disallowing $839,999 of the refund claim that it has previously allowed as indicated in the November, 2014 letter. Because of this, Plaintiffs were now being assessed an outstanding liability of $859,557.84. As a result, the IRS took $335,871 from the 2014 refund and applied it to the 2012 tax liability since this amount had come from Plaintiffs’ request to forward the remainder of the 2012 refund claim to the next year’s tax bill.

In early 2018, the taxpayers filed suit seeking a refund of $839,999 – i.e., only part of the original overpayment shown on the return. The DOJ moved to dismiss the suit for lack of jurisdiction as untimely, arguing that the 2-year period in section 6532(a) to bring such a suit commenced when the IRS sent its first letter in November 2014.

The district court ruled in the alternative. It held that the filing deadline for the refund suit commenced in May 2016, when the second IRS letter was issued. In the alternative, because of the confusing nature of the IRS correspondence, if the filing deadline actually started in November 2014, the filing deadline was tolled because of “equitable considerations” generated by this confusing correspondence, “including the fact that Plaintiffs were informed that $839,999 of the requested refund claim was not going to be allowed less than 6 months before the statute of limitations expired . . . .”

Before applying the alternative holding of equitable tolling, the court examined whether the filing deadline was jurisdictional under recent non-tax Supreme Court case law summarized in United States v. Wong, 135 S. Ct. 1625 (2015) (finding the filing deadlines for Federal Court Claims Act suits in 28 U.S.C. § 2401(b) nonjurisdictional and subject to equitable tolling). In Wong, the Court held that filing deadlines are normally nonjurisdictional claims processing rules. Congress could, though, make such deadlines jurisdictional through a “clear statement” in the statute, but “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.” Id. at 1632.

The district court in Wagner also looked to Volpicelli – a Ninth Circuit opinion holding the then-9-month filing deadline in section 6532(c) to bring a district court wrongful levy suit nonjurisdictional and subject to equitable tolling. We blogged on Volpicelli numerous times in 2015: here, here, here, and here. Volpicelli had been decided a few months before Wong. The DOJ had asked for reconsideration of Volpicelli by the Ninth Circuit en banc, since Volpicelli disagreed with holdings of at least one other Circuit that were made prior to the 2004 change in the Supreme Court’s jurisprudence on jurisdiction. When the Ninth Circuit declined to hear the Volpicelli case en banc, and the Supreme Court shortly thereafter issued its opinion in Wong, apparently the Solicitor General lost interest in appealing Volpicelli to the Supreme Court, since it is hard to imagine the SG winning Volpicelli after losing Wong (where the statutory language appeared even more mandatory). In all the subsequent cases that Keith and I have been litigating, though, the DOJ always states that it still disagrees with Volpicelli.

The district court in Wagner concluded that Congress had done nothing special in section 6532(a) to make it jurisdictional and not subject to the usual presumption that filing deadlines are subject to equitable tolling. The district court wrote:

First, Congress’ separation of the filing deadline in § 6532(a) from the waiver of sovereign immunity found in 28 U.S.C. § 1346(a)(1), as well as the placement of § 6532 in the Tax Code under subtitle of the Internal Revenue Code labeled “Procedure and Administration, is a strong indication that the time bar is not jurisdictional. Second, [unlike section 6511 discussed in United States v. Brockamp, 519 U.S. 347 (1997),] the time limitation is purely procedural and has no substantive impact on the amount of recovery. It speaks only to a claim’s timeliness and not to a court’s power. Third, the recovery of a wrongfully withheld refund is akin to the traditional common law torts of conversion. Fourth, the deadline set forth in § 6532(a) is not cast in jurisdictional terms and the language/text used does not have any jurisdictional significance. Finally, the text does not define a federal court’s jurisdiction over tort claims generally, does not address its authority to hear untimely suits, or in any way limit its usual equitable powers.

Observations 

Although the DOJ will be hopping mad about the Wagner ruling, the DOJ will not be able to appeal it to the Ninth Circuit until the district court determines the amount, if any, of the appropriate refund. So, stay tuned.

The holding in Wagner is entirely predictable, since an earlier district court in the Ninth Circuit had stated that, in light of Volpicelli, “it remains an open question” whether the filing deadline in section 6532(a) is subject to equitable tolling in an appropriate case”. Hessler v. United States, 2016 U.S. Dist. LEXIS 1210 (E.D. Cal. 2016). Accord Drake v. United States, 2011 U.S. Dist. LEXIS 22563 (D. AZ. 2011) (doubting but not deciding whether the filing deadline in § 6532(a) is still jurisdictional in light of recent Supreme Court case law)

Whether the section 6532(a) filing deadline is jurisdictional or subject to estoppel are two of the issues that are currently being litigated in the Second Circuit in Pfizer v. United States, Docket No. 17-2307. Oral argument was had in Pfizer on February 13, 2018, and an opinion could come out any day – though the court has alternative ways of deciding the case that might avoid addressing these issues. The Harvard clinic submitted an amicus brief in Pfizer arguing that the section 6532(a) filing deadline is not jurisdictional under recent non-tax Supreme Court case law. Our brief parallels the reasoning of the Wagner court. Here’s a link to our amicus brief. We have discussed Pfizer and its various issues in posts here, here, here, and here.

As we noted in our Pfizer brief, some Circuits have previously held the filing deadline in section 6532(a) to be jurisdictional. But they did so at a time before the Supreme Court in 2004 narrowed the use of the word “jurisdictional” generally to exclude filing deadlines and other “claims processing” rules. Compare Kaffenberger v. United States, 314 F.3d 944, 950-951 (8th Cir. 2003) (deadline jurisdictional); Marcinkowsky v. United States, 206 F.3d 1419, 1421-1422 (Fed. Cir. 2000) (same); RHI Holdings, Inc. v. United States, 142 F.3d 1459 (Fed. Cir. 1998) (same); with Miller v. United States, 500 F.2d 1007 (2d Cir. 1974) (deadline subject to estoppel). The Wagner opinion did not mention any of the pre-2004 Circuit court precedent, but decided the issue purely based on the recent Supreme Court case law that Volpicelli applied to section 6532(c) in 2015. Indeed, I think Wagner is the first opinion of any court to grapple, beyond speculation, with the impact of the recent Supreme Court case law on the nature of the section 6532(a) deadline. Certainly, no court of appeals has yet done so. Maybe the Second Circuit in Pfizer will be the first?

 

Filed Under: Equitable tolling, refund claim Tagged With:

Ninth Circuit Declines to Reach Constitutionality of President’s Removal Power Over Tax Court Judges

November 15, 2018 by 5 Comments

Frequent guest blogger Carl Smith brings us up to date on litigation over the constitutionality of IRC section 7443(f), giving the President removal power over Tax Court judges. Christine

In a post from September I alerted PT readers that two of the cases in which Joe DiRuzzo had again raised the issue of the constitutionality of the President’s removal power over Tax Court judges were set for oral argument before the Ninth Circuit. The constitutional separation of powers issue was decided against the taxpayers in both Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), and Battat v. Commissioner, 148 T.C. No. 2 (2017) – though, on different reasoning as to which Branch of government in which the Tax Court is located, if any.

Well, the Ninth Circuit panel removed both of Joe’s cases from the oral argument calendar, and it just issued two unpublished opinions. In both of the opinions, the Ninth Circuit avoided addressing the constitutional question.

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In Thompson v. Commissioner, Ninth Cir. Docket No. 17-71027 (Nov. 14, 2018), Joe had moved to recuse all Tax Court judges because, in light of the President’s removal power, the judges were being subtlely pressured to rule in favor of the IRS. When the Tax Court denied the motion (citing Battat), Joe brought an interlocutory appeal. Consistent with the results of all other interlocutory appeals that Joe has brought on this issue to date, the Ninth Circuit refused to rule on the constitutional issue. Joe tried to fit this case into an exception from the rule that, ordinarily, interlocutory appeals are prohibited. However, the Ninth Circuit found that no exception applied. Nor did it think a writ of mandamus should issue. The court wrote: “The Thompsons do not explain how their challenge to the constitutionality of the Tax Court cannot be adequately reviewed or possibly corrected on direct appeal.”

In Crim v. Commissioner, Ninth Cir. Docket No. 17-72701 (Nov. 14, 2018), the taxpayer submitted an OIC, and, after it was not accepted, went to Appeals. Appeals confirmed the OIC denial. Despite the fact that the OIC was not part of a Collection Due Process (CDP) hearing, the taxpayer petitioned the Tax Court for review. In the case, Joe also moved for recusal of all Tax Court judges on the constitutional issue. Citing Battat, the Tax Court first denied the constitutional motion in an unpublished order. Then, the court issued a second unpublished order holding that, in the absence of a CDP proceeding, the Tax Court lacked jurisdiction to review Appeals’ denial of an OIC. Crim’s appeal to the Ninth Circuit was thus not an interlocutory one. However, it fared no better. The court did not reach the constitutional issue because it held that the Tax Court had properly dismissed the case for lack of jurisdiction. The Ninth Circuit wrote:

Because Crim has not presented any evidence that the IRS filed a notice of a federal tax lien or a final intent to levy against him, that he requested a collection due process hearing with the IRS Office of Appeals, that he attended an Office of Appeals collection due process hearing, or that the Office of Appeals made any “determination” addressing a disputed lien or levy, the Tax Court lacked jurisdiction over Crim’s petition under 26 U.S.C. § 6320 and § 6330. Any argument that Craig v. Commissioner, 119 T.C. 252 (2002), commands a different result has been forfeited. See Christian Legal Soc’y Chapter of Univ. of Cal. v. Wu, 626 F.3d 483, 487-88 (9th Cir. 2010). Crim also forfeited the arguments raised for the first time in his reply brief that the Administrative Procedures Act, 5 U.S.C. § 706(1), and the All Writs Act, 28 U.S.C. § 1651, provide jurisdiction here. The failure to find jurisdiction on these grounds was not plain error. . . .

Given that the Tax Court lacked jurisdiction over Crim’s petition, we decline to exercise our “discretionary jurisdiction” over the recusal motion. See Gruver v. Lesman Fisheries Inc., 489 F.3d 978, 981 n.4 (9th Cir. 2007).

To get the constitutional issue adjudicated, it looks like Joe or somebody else will have to appeal any Tax Court ruling on the constitutional issue after a final decision is entered in a Tax Court case over which the court clearly had jurisdiction.

Filed Under: Tax Court Tagged With:

DOJ Argues that 28 U.S.C. § 2401(a) Doesn’t Bar Altera’s APA Challenge to a Tax Regulation Made More Than 6 Years After Adoption

October 10, 2018 by Leave a Comment

We welcome frequent guest blogger Carl Smith with breaking news about the Altera appeal pending in the 9th Circuit. Today’s news is not dispositive but does provide interesting insight on the Government’s view of a new issue raised by the 9th Circuit as the new panel reviewed the case. Keith

PT readers are no doubt aware of Altera v. Commissioner, 145 T.C. 91 (2015). In the case, the Tax Court invalidated a regulation under § 482 concerning the inclusion of stock option compensation in related-party cost-sharing arrangements. The two Tax Court dockets involved in the case were under the Tax Court’s deficiency jurisdiction in 2012. In those cases, Altera sought to invalidate a 2003 regulation both under the Chevron standard (i.e., not reasonable) and under the Administrative Procedure Act (APA). The Tax Court invalidated the regulation under both theories. The Tax Court found APA violations including the IRS’ (1) failure to respond to significant comments submitted by taxpayers and (2) in light of the administrative record showing otherwise, the IRS’ failure to support its belief that unrelated parties entering into cost sharing arrangement would allocate stock-based compensation costs.

As we blogged here, on July 24, 2018, the Ninth Circuit issued an opinion upholding the regulation. But that opinion was later withdrawn because one of the judges in the majority had died before the opinion was issued. After a new judge was assigned to rehear the case, the parties were invited to (and did) submit supplemental briefs. (Four supplemental amicus briefs were also submitted.) On the day all of these supplemental briefs were submitted, September 28, 2018, the Ninth Circuit panel issued an order inviting further briefing from the parties by October 9 on an issue that had never before been argued in the case. The case is set for reargument before the new Ninth Circuit panel on October 16.

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The recent order stated concerning this additional briefing issue:

The parties should be prepared to discuss at oral argument the question as to whether the six-year statute of limitations applicable to procedural challenges under the Administrative Procedure Act, 28 U.S.C. § 2401(a), applies to this case and, if it does, what the implications are for this appeal. Perez-Guzman v. Lynch, 835 F.3d 1066, 1077-79 (9th Cir. 2016), cert. denied, 138 S. Ct. 737 (2018).

In Perez-Guzman, the Ninth Circuit had held that procedural challenges to regulatory authority (unlike Chevron substantive challenges) must be raised in a court suit within the 6-year catch-all federal statute of limitations at 28 U.S.C. § 2401(a). Since the Altera deficiency cases had been brought more than six years after the pertinent regulation was adopted, the Ninth Circuit was, in effect, wondering whether all APA arguments in the case were time barred.

On October 9, however, the DOJ, rather than file a supplemental brief, filed a 5-page letter disclaiming any reliance on the statute of limitations under 28 U.S.C. § 2401(a). The letter states, in part:

It is the Commissioner’s position that any pre-enforcement challenge to the regulations at issue here – including a purely procedural challenge under the APA, cf. Perez-Guzman, 835 F.3d at 1077-79 – would have been barred by the Anti-Injunction Act. See 26 U.S.C. (“I.R.C.” or “Code”) § 7421(a) (stating that, “[e]xcept as provided in” various Code sections (the most significant of which, I.R.C. § 6213(a), allows the pre-payment filing of a Tax Court petition in response to a statutory notice of deficiency), “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person”) . . . . Thus, Altera properly asserted its challenge to the regulations in two Tax Court actions contesting notices of deficiency that reflected the enforcement of the regulations against it. See Redhouse v. Commissioner, 728 F.2d 1249, 1253 (9th Cir. 1984).

If Altera’s procedural APA challenge to the regulations were nonetheless subject to the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) (which would have started running on the date of issuance of the final regulation, see Perez-Guzman, 835 F.3d at 1077), then Altera would have had to pay the tax and file a refund claim within the six-year window – thereby forfeiting the opportunity to contest the enforcement of the regulations against it in the pre-payment forum of the Tax Court – in order to comply with that time limit. Because the Commissioner has never expressed the view that the six-year statute of limitations applies to a procedural APA challenge to a tax regulation in the context of a Tax Court deficiency proceeding, and because the IRS issued the notices of deficiency in this case outside the six-year APA window, it would have been unfair to argue below that Altera’s procedural APA claims are time-barred. And, given this Court’s holding that the six-year statute of limitations set forth in 28 U.S.C. § 2401(a) is not jurisdictional, Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 770 (9th Cir. 1997), the Commissioner waived any defense under that provision by not raising it in the Tax Court.

In sum, it is the Commissioner’s position that the six-year statute of limitations that is generally applicable to procedural challenges to regulations under the APA, see 28 U.S.C. § 2401(a), does not apply to this case.

Observation

Some people wonder why I litigate so much over whether or not filing deadlines are jurisdictional. The Altera case demonstrates again why this can often be a critical issue, since only nonjurisdictional filing deadlines are subject to waiver, forfeiture, estoppel, and equitable tolling.

 

Filed Under: Administrative Procedure Act (APA) Tagged With:
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